Resilience Resolutions: Navigating uncertainty in the logistics sector

Marsh’s 2023 resilience resolutions are there to help the logistics sector drive agility and stability in a complex risk landscape.

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Increased media reporting of supply chain disruption in recent years has cultivated greater awareness of the challenges involved in distributing goods within the logistics sector. Critical service providers, such as freight forwarders, hauliers, couriers, and third-party logistics businesses (3PLs) are receiving long-deserved recognition for their vital role in the UK economy. Digitalisation and business continuity management have helped operators maintain stakeholder satisfaction and adapt to uncertainty. However, new challenges continue to emerge even after past disruptions have resolved. Recent record-high inflation rates indicate that macroeconomic difficulties will influence the logistics risk landscape for the foreseeable future. To mark the beginning of the year, our 2023 resilience resolutions may help to drive agility and stability in the next 12 months and beyond. 

Consolidate contracts

Ostensibly, both parties in B2B contracts are concerned with protecting their balance sheets from loss. Customer contracts increasingly transfer liability for goods away from the cargo owners, and onto the 3PL instead. Standard terms and conditions of trade have commonly attributed monetary values to weights of cargo, meaning that in the event of damage during storage or transit, the 3PL would be proportionately liable for the volume of goods affected. However, customer contracts are now likely to hold 3PLs liable for the full value of goods in their care, custody, and control. Heightened inflation could increase the degree of liability along with the rising value of goods, particularly if the basis for indemnity is either the replacement or reinstatement cost. Reviewing counterparty terms of agreement and potential changes to stock values – especially for automatic-renewal contracts – is essential to avoid gaps in cover and ensure the correct limits of insurance are in place.

Strengthen sustainability, enhance efficiency

Logistics operators are linked to various key process locations, contract counterparties, consumer bases and distribution channels. Delivering for all stakeholders will therefore be a challenging balancing act this year. A recent study revealed that environmental awareness is one of the top value differentiators for 66% of global consumers.[1] This subsequently puts pressure on businesses to balance cash flow concerns alongside fulfilling existing sustainability commitments. However, integrating environmental, social and governance (ESG) initiatives into day-to-day operations may identify cost-efficient synergies for businesses. For instance, machine learning and automated technologies use keywords and product dimensions to appropriately size packages, simultaneously reducing environmental waste and expenditure on shipping materials. Further solutions could include implementing physical controls in warehouses or vehicles to prevent total losses where temperature-controlled systems have failed, but the product can still be salvaged and restored in line with regulation and error margins. Evaluating ESG initiatives alongside operations may reveal opportunities to improve sustainability, optimise efficiency and maximise value.

Review Risk Financing

The dynamic logistics sector will continue to face unknown challenges in the coming years, and an evolving risk environment may bring about swings in operational or business interruption costs, asset valuations, and even core business activity itself. Risk financing methods, such as insurance policies, retention levels or captive arrangements, must account for all variations to function optimally. The biggest threats to business should be evaluated together with strategic priorities, liquidity, and risk tolerance levels, to assess the viability of your current risk financing programme in line with resilience goals.

Successful operators have embraced flexible and proactive practices to combat a historically volatile risk landscape. Diligently managing contractual procedures, while simultaneously monitoring the effects of inflation, will be key for businesses aiming to survive and thrive this year. However, future disruptions are unpredictable, and the industry’s increasing reliance on technology exemplifies how rewards can be closely tied with emerging risks, such as cyber security threats. A holistic understanding of both internal and external threats to business objectives is the best method for bolstering resilience in the face of adversity. 

Marsh has a wealth of experience in supporting clients with the aforementioned challenges. Our industry and risk experts within the Transportation Practice are here to stand with you, navigating uncertainty and moving towards your ideal future state.

[1] 2022 Global Sustainability Study: The Growth Potential of Environmental Change | Simon Kucher

Our people

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Zoe Parkes

Transportation Industry Practice Leader for UK & Ireland

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Sarah Dyer

Logistics Practice Lead, Marine